Ranchers rebel over beef checkoff

Jan. 19, 2015, 6:30 a.m. ·

Fellow rancher Jim Dobbins, left, and Pfrang have lobbied from their ranches in Nemaha County, Kan., for changes in the beef checkoff program. (Photo by Todd Feeback, Harvest Public Media)

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It seemed like a good idea for the beef business. Collect a dollar from each cattle sale to fund marketing and research. So a law was passed and everyone chipped in. Billions of dollars later, some ranchers are unhappy with how the money is handled.

From their small farms set in the rolling hills of northeast Kansas, two ranchers are raising a few cattle, and a lot of Cain.

David Pfrang and Jim Dobbins turned themselves into activists, launched a shadow corporation, got hauled into federal court and had to hire a lawyer.

All over $1.

That buck, though, divides the beef industry. And may influence what you decide to have for dinner.

The federal “beef checkoff” mandates a $1 payment every time a head of cattle is sold. That adds up to about $80 million a year nationwide, money that is supposed to be used to convince us to buy more beef. Nobody in the beef industry argues much about that idea.

Checkoff officials say a recent study calculated that every dollar collected by the checkoff delivers $11.20 in return. Among its successes is a series of iconic commercials called “Beef, it’s what’s for dinner.”

But there is a lot more to the beef checkoff than meets the eye. That $1 assessment, critics like Pfrang and Dobbins say, flows with limited oversight to state and national interests.

Sellers must pay even if they don’t believe they have any say over who gets the money, or why. And they must pay even if they believe the fund advances the interests of multi-millionaire ranchers against their own.

“I call it the liberty tax,” Pfrang said. “We just lost some freedom and we’re not being represented.”

As many as a fourth of the nation’s 730,000 ranchers - mostly small independent farmers - have complained for years that the checkoff has become a billion-dollar bonanza for big ranchers, industry executives, and giant beefpackers.

Federal statistics show larger more efficient cattle operations are forcing out smaller ranchers and feedlots. This vertical integration has already completely altered the U.S. chicken and hog industries.

Polly Ruhland, chief executive officer of the Cattlemen’s Beef Board, which oversees the checkoff, says the program is working as it should.

"Producer approval of the beef checkoff program is at its highest in 21 years," she wrote in an email. Ruhland declined to be interviewed for this story.

Opponents have fought the checkoff all the way to the U.S. Supreme Court, which ultimately ruled that it is legal “government speech.” But that has not deterred small ranchers who continue to file lawsuits, release scathing analyses of the program, and lobby the secretary of agriculture for change.

A beef over politics

The federally authorized collection agents for the checkoff are state groups like the Kansas Beef Council in Topeka, which is at the forefront of the battle Pfrang and Dobbins are waging.

They say their beef started when the Kansas council refused to give them detailed financial records on how they spend the $10 million a year they collect from them and 20,000 other Kansas producers.

Kansas and other state beef councils keep 50 cents of every dollar they collect and use it to run their own statewide programs. The other 50 cents goes to the national Cattlemen’s Beef Board, which runs the national beef promotion campaign.

Because the collections are mandated by federal law, Congress built in safeguards to prevent checkoff dollars from being misused for lobbying or political contributions.

And therein lies the rub for many small ranchers, including Pfrang and Dobbins.

More from Harvest Public Media: Antitrust official stampeded by big beef

Kansas rancher David Pfrang is one of thousands of small beef producers challenging the oversight of the multimillion dollar “beef checkoff” fund, which is used to promote the beef industry. (Photo courtesy Jill Toyoshiba, The Kansas City Star)

The state beef councils – and the national program – have strong ties to politically oriented beef industry lobbying groups up and down the line.

The Kansas Beef Council, for example, is a division of the Kansas Livestock Association, a venerable Topeka lobbying shop since 1894. At the national level, the vast majority of checkoff dollars is funneled into the National Cattlemen’s Beef Association (NCBA).

The NCBA is based outside Denver, but its Washington, D.C. office has long been a strong political voice there, spending millions on lobbying and campaign contributions. In the 2014 mid-term elections alone, the NCBA gave nearly $800,000 to mainly Republican political candidates.

Yet as the prime contractor for the national beef checkoff program, the NCBA has gotten checkoff-funded contracts for research and promotion in each of the last 26 years. That amounts to more than 98 percent of total checkoff revenue and 82 percent of NCBA’s total budget, according to a recent lawsuit filed by small producers.

And the arrangement appears likely to continue. That same lawsuit claims that the NCBA controls half the seats on the beef checkoff’s contracting committee.

“I think it is a broken system,” said Wil Bledsoe, president of the Colorado Independent Cattle Growers Association and a rancher who raises 900 head of cattle near Wild Horse, Colo.

“I don't want them using my money to fight my livelihood like they have been,” he said. “What's good for packers isn't usually good for the little guy, and vice versa. So how can they claim to represent both?”

For its part, checkoff officials say no checkoff money leaks to lobbying.

Checkoff funds are "extensively audited from various angles," Ruhland, of the Cattlemens’ Beef Board, wrote in her email.

Checkoff officials at all levels insist that firewalls built inside the lobbying organizations prevent any misuse of those funds.

Faulty firewalls?

But critics say those firewalls sometimes work more like revolving doors.

And government monitors overseeing the program are aware of the problems, said one former U.S. Department of Agriculture official.

“The administration is well aware that the NCBA has misappropriated producer money and the NCBA has helped defeat policy reforms that would have helped small producers,” said Dudley Butler, who resigned as a top USDA official in 2012.

Butler, a lawyer, says the checkoff is nothing more than an “illegal cattle tax.”

In an open letter to his old boss, Butler says Agriculture Secretary Tom Vilsack has all the power he needs to reform the program, but refuses to do so. “Your lack of leadership has ensured that independent cattle producers will continue to be systematically pushed toward the slaughterhouse of vertical integration,” Butler said in his letter.

Claims from Butler and others got some traction two years ago when a federal audit, sparked by complaints from producers, found that the NCBA had wrongly spent $216,000 on “non-checkoff activities” such as travel to non-checkoff events.

Auditors added that the USDA division charged with overseeing the fund had fallen down on the job and failed to identify weaknesses in the checkoff program’s internal controls.

Despite those findings, auditors assured producers that there’s no reason to question the integrity of the program.

But that only added another log to the bonfire that’s been burning for years over the checkoff program.

Critics seized on what they saw as the auditors’ contorted logic. How can you find such a gaping hole in this impregnable firewall they wondered, but then declare there’s nothing to worry about?

What’s more, auditors looked at only 983 transactions between the beef checkoff and the NCBA – a fraction of the 19,000 transactions that occurred, according to a lawsuit filed in the aftermath of the controversy. The suit, filed by a group of farmers called the Organization for Competitive Markets, seeks access to more than 40,000 pages of documents that were never released.

But faulty firewalls aren’t the only problem.

High salaries paid to NCBA officials and their lieutenants on the state level, are like a spur in the side.

Federal tax forms show that NCBA’s chief operating officer, Forrest Roberts, was paid $428,319 in 2013, a sizeable chunk of the $13 million that went to NCBA salaries that year. NCBA officials say Roberts’ salary is comparable to other CEOs in similar positions.

Ranchers nationwide are required to pay $1 in to the beef checkoff fund every time they sell an animal, like this one shown on Pfrang’s ranch. (Photo courtesy Jill Toyoshiba, The Kansas City Star)

That may be true, critics acknowledge, but the salaries of other CEOs are not subsidized by mandatory payments like the checkoff.

“NCBA regards the checkoff as its own personal financial trough and will do everything possible to cement that status into eternity,” National Farmers Union president Roger Johnson has said. "Clearly, NCBA wants to protect its turf and its income stream, but its days of living off the checkoff slush fund need to come to an end."

Kimmi Clark Lewis, former president of the Arkansas Valley Cattlewomen, agrees. “We need a complete audit of the beef checkoff. Not just a few years, all the years and show where the funding goes.” Lewis, who runs a 300-head cow-calf operation in eastern Colorado, wants to print bumper stickers that say: “Beef checkoff - beef ripoff! Stop the corruption!”

Another key ingredient in the brushfires surrounding the program is foreign trade.

Small ranchers are furious that the NCBA has lobbied against country-of-origin labeling on meat products. They say they have a right to take advantage of a clear consumer preference for beef that is raised and slaughtered here.

“I think the American housewife has a right to know where their beef comes from,” said Malvern Mizner, a rancher from western Nebraska. “For God sake, we even know where our underwear is made but for what we eat it’s not a requirement!”

Despite those concerns and more than $2 billion spent to spark demand over the years, critics add, the checkoff hasn’t stemmed the steep slide in U.S. beef consumption.

A Montana cattlemen’s group cites an analysis by the National Chicken Council to back that up.

It shows that during the last 29 years, the beef checkoff spent about $2.2 billion promoting beef. During those same years, per capita beef consumption fell by about a third, from 79.2 pounds per person in 1985 to 54.1 pounds per person in 2014.

At the same time poultry, which has no checkoff program, grew by more than 35 pounds per person, a 55 percent increase in per capita consumption.

Two-hat states

In Kansas, the politics of beef are hard to ignore. Consider the career of Thomas Dee Likes.

Likes is a living legend in the Kansas cattle business. Until recently he was the executive vice president of the 5,500-member Kansas Livestock Association, a powerful, 120-year-old Topeka lobbying group.

For three decades, Likes was the Kansas beef industry’s chief lobbyist in Topeka. He was the architect of state initiatives that have helped the Kansas cattle industry remain a big part of the state’s economic engine. He successfully pushed for tax reductions or exemptions on farm land, machinery, parts and labor.

He’s also the epitome of what checkoff cowboys mean by the term “two-hat state.”

Kansas rancher Tim Manson is one of many who don’t mind paying in to the fund. Checkoff officials say the fund returns value to beef producers. (Photo by Todd Feeback, Harvest Public Media)

On one day Likes could wear his Kansas Livestock Association hat, lobbying a state legislator over lunch. Later the same day, he could wear his Kansas Beef Council hat, riding herd over checkoff dollars.

That’s because Likes was also treasurer of the Kansas Beef Council, a subdivision of the Kansas Livestock Association. In fact they share a staff and office space in the same Topeka building.

Two-hat states like Kansas threaten the entire checkoff program, said Bill Bullard, who runs an independent cattlemen’s association based in Montana.

“They are privately held corporations established without any enabling legislation that are unlawfully collecting and disseminating the mandatory cattle assessments,” Bullard said.

Likes, the beef board, and the USDA say there’s nothing amiss about the arrangement in Topeka. It’s the same way in 17 of the 45 states that have qualified state beef councils.

Likes said the beef council has its own board of directors and a separate accounting system and “no funds are comingled."

But Likes and other officials declined to say whether any checkoff dollars are used to subsidize his salary as the beef council treasurer, or those of any other Kansas Livestock Association officials.

The (beef) council’s policy is “to not disclose individual salaries,” said Kevin Theilen, executive director of the state beef council.

When asked for a detailed breakdown of beef council finances, including travel costs and specific salaries, officials referred to existing annual reports and audits that do not provide that level of detail.

Up in Nemaha County, the arrangement has cattlemen like David Pfrang pulling his hair out.

Not only that, said Pfrang, but how can there be a firewall between checkoff dollars and lobbying like the law says, when Dee Likes could walk back and forth through that wall all day and never get singed?

Recent audits show nothing amiss, but Pfrang isn’t satisfied.

He and his neighbor Jim Dobbins already knew that Likes was paid handsomely for his two-hat service to the industry. The most recent KLA financial report shows Likes was paid total compensation of $329,937 in 2013, but in years past he’s made over $1 million in salary and other compensation.

No one will say how much of that money, if any, comes from checkoff funds, or dues paid by KLA members.

Likes retired from his leadership role at the KLA at the end of 2014, and became Chief Executive Emeritus.

But the old “two hat” arrangement will continue. In fact it’s required by the bylaws of the Kansas Livestock Association. Matt Teagarden, who recently replaced Likes as executive director of the KLA lobbying organization, also serves as treasurer of its subsidiary, the Kansas Beef Council.

Trojan horse

All the secrecy just made Pfrang and Dobbins want to know.

So the two Nemaha County cowboys headed down to Topeka in 2011 on a fact-finding mission.

They checked to see if the Kansas Beef Council filed more detailed financial records when it registered with the secretary of state.

But there was no record of the council’s existence. It was as if the Kansas Beef Council, a government-authorized collection agent for the mandatory checkoff assessments, didn’t exist, at least as far as the Kansas Secretary of State was concerned.

That gave the Nemaha County cowboys an idea.

They registered that same name themselves with the secretary of state, then wrote bylaws and elected themselves to run their very own Kansas Beef Council, Inc. Only in their version, they said, everyone would get a vote.

Before long, Pfrang and Dobbins started getting a lot of mail from Topeka.

“If you have $10 million coming into your coffers every year, would you want a couple of snotty-nosed cattlemen up in Nemaha County wanting to try to jump into your pool and muddy it up?” asked Dobbins.

The Kansas Livestock Association accused them of stealing the name “Kansas Beef Council.” Washington lawyers got involved and sent them a cease and desist order.

They got hauled into federal court and had to pay a lawyer. In the end, they decided not to fight it out in court and gave up the name. But they refused the beef council’s demand for a gag order, and they’ve been talking about it ever since.

Pfrang can’t do much about the national checkoff program, he said. But he did find a way to keep the Topeka crowd from getting his money.

Federal law allows ranchers in some states, including Kansas, to forward their entire dollar-per-head checkoff payment to the national program. So far, state beef council officials said, Pfrang is the only Kansas rancher to take advantage of the loophole.

“It’s turned us into activists,” Pfrang says. “There’s no accountability. That’s what tees us off.”

But he’s not any happier with direction at the national level. Recent efforts by checkoff supporters to double the fee to $2 a head sparked a renewed battle.

All the bickering prompted Secretary of Agriculture Vilsack to let lose at a recent Kansas City press conference.

“Because they’re locking horns, tens of millions of dollars of promotion, and research and marketing isn’t getting done...” Vilsack said. “I mean, seriously, does that make sense?”Whether all the bickering makes sense or not, critics say the battle royal over the beef checkoff is really a struggle to preserve a way of life.They will continue to complain, they say, until the government fixes it, or they go the way of the small chicken and hog farmers who succumbed to what appears to be an inevitable march toward greater efficiency through vertical integration in American agriculture.

Mike McGraw is a special projects reporter at the Hale Center for Journalism at KCPT. Peggy Lowe is investigations editor at Harvest Public Media.